Caribbean at the Crossroads

Where does the Caribbean stand in a world of rapid change? How should it relate to the new North American free trade area and the single European single market? Is there a danger of marginalisation? Peter B. Johnson — Executive Director of Caribbean/Latin American Action in Washington — asseses the dangers to the region of NAFTA and EFTA, and charts an urgent course for the future

  • Illustrations by Christopher Cozier
  • Illustrations by Christopher Cozier
  • Illustrations by Christopher Cozier

What NAFTA and the EFTA mean for Caribbean trade

Stability, we are told, is what businessmen and investors seek above all else. Yet today’s headlines are full of tumultuous changes, which some business people find unsettling and others see as harbingers of new opportunity. A new trade agreement between Mexico, the United States and Canada; fragmentation into smaller states in Eastern Europe; convergence into a single economy in Western Europe.

Change is everywhere, it seems, except in the Caribbean. Accustomed to the limelight provided by the Caribbean Basin Initiative during the Reagan years, and the perennial (if elusive) spectre of leftist insurgency during the Cold War era, the Caribbean has viewed the shifting focus with an understandably sceptical eye. A closer look at the headlines, however, suggests that West Indian political and business leaders may be worrying in some ways too much and in other ways too little about the region’s danger of being upstaged by events elsewhere.

Number One on the worry list is the long-heralded North American Free Trade Agreement (NAFTA). The question is whether, by opening US borders to Mexican goods on terms equal to or better than those enjoyed by the Caribbean and Central American countries, NAFTA will erode the competitive edge carefully nurtured for these small exporters by the Caribbean Basin Initiative (CBI).

Today, the CBI’s duty-free treatment of many otherwise dutiable products, and effective exemption from textile quotas under the companion Guaranteed Access Level programme, gives Caribbean Basin exporters a slight edge over most competitors. But as duties and quotas are gradually eliminated under the NAFT A, Mexican exporters will not only catch up with their CBI competitors but will be able to exploit their own natural advantages-an enormous internal market and labour pool, an overland link to the US market, and a rapidly privatising economy.

Before NAFTA negotiators had even initialled a draft, new trade and investment had begun gravitating towards Mexico, drawn by the Mexican government’s moves to create a favourable business climate, and by excitement about the potential of a unified North American market. Caribbean and Central American businessmen fear that the investors now eyeing Mexican opportunities, and longer-term prospects in eastern Europe and even Cuba, are the same people who might once lave set their sights on the CBI countries.

Meanwhile, the small Eastern Caribbean islands face an even more direct threat across the Atlantic, as the region’s former colonial powers turn their energies inwards and build a unified European economy. One of the things at stake is the protected banana market which Windward Island producers have enjoyed in Britain. So far, European Community pronouncements have promised to preserve the advantages, if not the specific programmes, agreed under the current Lome Convention. But after its 10-year term expires, all bets are off.

In response to new competition for markets and investors, Caribbean Basin countries are told to become more competitive by modernising infrastructure, revamping regulatory regimes and diversifying production. But major transformations like these are costly, at a time when the demand for aid dollars far outstrips supply.

Does all this add up to the collapse of the Caribbean Basin as a significant player in the global economy as the next century approaches?

Not at all. The challenges are real. But creative responses by Caribbean and Central American business and political leaders can turn problems on both sides of the Atlantic to the region’s advantage.

The North American Free Trade Area-a concept not even on the horizon when the CBI was born-provides a golden opportunity for the Caribbean to press for inclusion in the North American system on special terms that would be mutually binding-as in the case of Lomé- rather than unilateral US policy concessions, as in the CBI.

And as North America and Europe concentrate on developing their respective regional systems, Caribbean countries will be uniquely positioned with close ties to both and with special access to both markets under special programmes. Many Caribbean countries will be able to serve as a business bridge, offering American manufacturers a gateway to the European market and vice versa.

This will not happen automatically. In fact, it might be regarded as something of a long shot, with low profitability despite potentially great rewards. To give the region its best chance, Caribbean businessmen and political leaders need to tackle the task with real urgency-not tail-spinning with needless pessimism, but using a healthy sense of vulnerability to compete more aggressively for the prize at hand.

Among the tasks ahead are:

• Proceeding boldly with economic reform, in areas such taxation, currency conversion and thinning out regulatory red tape. NAFTA did not create Mexico’s foreign business boom: it was the upsurge in Mexican business interest- initiated by the Mexicans through mas- reforms-that created the climate where NAFTA was possible.

• Biting the bullet on the creation of a regional economy.

Tiny states with miniscule labour forces, intra-regional tare barriers and different sets of business laws just cannot compete in the big league. A more unified Caribbean economy with a free flow of goods and labour, common or readily exchanged currency and a consistent legal and regulatory environment, would be a real alternative to Mexico. Dramatic progress in Caribbean unity would do much to capture the business momentum an political limelight from more fast-moving regional groupings like MERCOSUR in South America, and giving the Caribbean a leading role in the new hemisphere-wide Enterprise for the Americas Initiative (EAI). The blueprint is already there. reinforced by the recent report of the West Indian Commission.

• Staying Caribbean Basin-conscious. The overshadowing of the Caribbean Basin Initiative by the NAFTA and EAI is no reason to let the vision of a broader, cohesive Caribbean Basin region slip away. What some people feel started as an artificial construct of US policy in the Reagan years has become a reality in fact: the small nations of the island and isthmus subregions have much more in common in terms of global interests than they realised -and much more to gain from mutual trade and collective action. An important demonstration of cross- Basin cooperation would be if the region’s governments tried working together to find a creative mutual solution to their conflicting banana interests, instead of lobbying against each other in the halls of Europe over policies to be determined by third parties.

• Getting to work on infrastructure. Good ports, roads and telecommunications facilities can give potential investors a competitive edge that can compensate for loss of preferential tariff positions. This could make a vital difference, not only in attracting and keeping manufacturing business, but in marketing the region’s premier industry-tourism-and developing new sectors for the electronic age. Lack of public-sector funds whether from local tax revenue or international aid, is no longer an excuse; countries that want to be on the competitive edge in infrastructure are experimenting with a wide range of options for bringing in private capital.

• Active international advocacy. Decisions made in Europe or North America which vitally affect the interests of the Caribbean Basin aren’t made in a vacuum. Caribbean and Central American leaders-preferably together- need to press actively for the policies they favour and the role they want the

region to play in the newly emerging trade systems This means working in Washington to ensure that special benefits for the CBI countries are built into, or upgraded alongside, the NAFTA, and looking beyond US policy to closer trade and economic ties with Mexico, Venezuela and Colombia. A network of special relationships with all its neighbours will help make the Caribbean Basin a many-spoked hill: attracting businesses that seek expansion in multiple directions.

Today, there are few platforms with a uniquely Caribbean Basin focus, as opposed to a narrower North American or broader Western Hemisphere scope. The notable exception is the annual Miami Conference on the Caribbean, which each December brings together over a thousand top government and business leaders from the Caribbean, Central America and the United States arid other trading partners.

As sponsor of the Miami Conference, C/LAA sets the stage both for business deals and policy dialogue. Many of the region’s heads of government make a point of attending year after year. This year, a special pre-Conference Institute programme previews the future world of hemispheric free trade by examining successful economic reform models and emerging subregional free trade groupings from Mexico to the Southern Cone. The main Conference sessions cover broad trade policy issues as well as specific business and regulatory issues in agriculture, tourism, manufacturing and other key sectors.

As this year’s Conference convenes, the NAFT A agreement will probably have been sent to Congress for its required 90-day preview before the President is permitted to sign it; the 90 days will still be running. The presidential contest will have been decided, leading to strategic discussions of new policy directions for the next four years. The new Congress that convenes in January 1993 will have to enact implementing legislation for NAFTA, and to address the need for protecting the interests of CBI countries. It will be a crucial time for policy-making and for re-focusing business attention on opportunities in the Caribbean before the rush to Mexico starts in earnest.

The coming year will be critical for the Caribbean. It could be the year in which fragile economies are bowled over by NAFTA, pushed to the bottom of the EAI priority list, and left in the cold as North America and Europe turn inwards. Or it could be the year when the Caribbean Basin moves decisively towards unity, finds a role for itself in NAFT A, and seeks full participation in the new hemispheric system. The Caribbean is at a crossroads. And the direction it chooses must come from within.

The 1992 Miami Conference on the Caribbean: November 3 — December 4. For information, call 202 466-7464